Chapter One Why Plan? Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 1-1 Dr. Bruce Barringer University of Central Florida

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-2 Chapter One Why plan? Reasons for writing a business plan Who reads the business plan—and what are they looking for? Guidelines for writing a business plan Types of business The plan for the book

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-3 Introduction  Increased interest in the study of entrepreneurship  2,100 colleges and universities offer entrepreneurship coursework  About 400,000 students took at least one entrepreneurship course in 2005  72% of American adults have considered starting a business

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-4 External Support Business incubator An organization that provides physical space and other resources to new firms in hopes of promoting economic development in a specific area Investors rely on the business plan to make decisions on initial investment Many investors ask for an executive summary—a short overview of the business plan—describing the merits of a new venture

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-5 Who reads the business plan and what are they looking for? Two primary audiences Firm’s employees  Looking for the vision and future of the firm Investors and other stakeholders  Investors, potential business partners, potential customers, grant awarding agencies who are being recruited

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-6 Structure and Style Conventional structure 25 to 35 pages in length Look sharp but not too expensive or flashy

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-7 Structure and Style Elevator speech Now popularly called “Fast Pitch” A brief, carefully constructed statement, usually 45 seconds to 2 minutes long that outlines the merits of a business venture or business plan insight feature

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-8 Elevator Speech Four steps in an elevator speech (from business plan insight feature) 1. Describe the opportunity (need) or ”pain” 2. Describe how your product or service meets the opportunity (need) 3. Describe your qualifications 4. Describe your market

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-9 Red Flags  Founders with none of their own money at risk  A poorly cited plan  Defining the market size too broadly  Overly aggressive financials  Hiding or avoiding weakness  Sloppiness in any area  Too long of a plan

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-10 Measuring the Business Plan Against Your Personal Goals and Aspirations Venture capital Venture capitalists aim for 30 to 40% annual return and total return of 5 to 20 times their original investment over the life of the investment

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-11 Venture Capital  Using venture capital involves surrendering equity in the firm to outsiders in exchange for their investment and accepting heavy scrutiny  Some entrepreneurs find it better to launch a firm in a target market and solicit funds from friends, family, or a lender  Some entrepreneurs “bootstrap” or fund the business out of cash flow

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-12 The business plan is a living, breathing document, rather than something set in stone Recognizing that Elements of the Business Plan May Change

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-13 Types of Business Four distinct types of businesses Survival Lifestyle Managed growth Aggressive growth

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-14 Survival Provides its owner just enough money to put food on the table and pay bills Types of Business

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-15 Lifestyle Provides its owner the opportunity to pursue a certain lifestyle and make a living at it (clothing boutique, personal trainer) Types of Business

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-16 Managed growth Employs 10 or more people, may have several outlets, and may be introducing new products or services to the market (regional restaurant chain, multi-unit franchise) Types of Business

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-17 Aggressive growth Bringing new products and services to the market and has aggressive growth plans (computer software, medical equipment, national restaurant chain) Types of Business

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-18 The Plan for the Book  Section One: Starting the process  Section Two: What to do before the business plan is written  Section Three: Preparing a business plan  Section Four: Presenting the business plan

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-19 Comprehensive Feasibility Analysis 1. Identifying a business idea 2. Screening the idea to determine its initial feasibility 3. Conducting a full feasibility analysis to determine if proceeding with a business plan is warranted 4. Writing the plan

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall1-20